Two Theories of Poverty

Paul Ryan released his anti-poverty plan last week. In it, he proposes that a variety of federal means-tested welfare programs be turned into cash block grants to states, who would then be allowed to dole out the cash in exchange for recipients laying out a life contract for how they will increase their market incomes for a nosy case worker. As I explained on the day it came out, this is a bad idea, unnecessary, and seriously misunderstands the nature of American poverty.

In response to Ryan, many commentators pointed out that people do not need life contracts to go on to boost their market incomes because they already do that (myself, Weissman, Bouie). These writers point out that people move in and out of poverty a lot. Even though the poverty rate stays pretty steady year to year, "poor people" are not the same people each year.

Although these rebuttals have been fairly modest in scope, they actually lay bare a fundamental difference in the way right-wingers and left-wingers understand poverty.

Theory One: Poverty Is Individual

The right-wing view is that poverty is an individual phenomenon. On this view, people are in poverty because they are lazy, uneducated, ignorant, or otherwise inferior in some manner. If this theory were true, it would follow that impoverished people are basically the same people every year. And if that were true, we could whip poverty by helping that particular 15% of the population to figure things out and climb out of poverty. Thus, a program of heavy paternalistic life contracts to help this discrete underclass get things together might conceivably end or dramatically reduce poverty.

Theory Two: Poverty Is Structural

The left-wing view is that poverty is a structural phenomenon. On this view, people are in poverty because they find themselves in holes in the economic system that deliver them inadequate income. Because individual lives are dynamic, people don't sit in those holes forever. One year they are in a low-income hole, but the next year they've found a job or gotten a promotion, and aren't anymore. But that hole that they were in last year doesn't go away. Others inevitably find themselves in that hole because it is a persistent defect in the economic structure. It follows from this that impoverished people are not the same people every year. It follows further that the only way to reduce poverty is to alter the economic structure so as to reduce the number of low-income holes in it.

Which is true? Structural Poverty

To figure out which theory is true, the easiest thing to do is answer the question: are impoverished people the same people every year or different ones? The individual theory predicts that they are the same people (and further that they need paternalist intervention to get their act together). The structural theory predicts that they are different people (and further that we need to alter the economic structure to make things better).

As all of the commentators linked above mentioned, longitudinal surveys show that impoverished people are not the same people every year. The last SIPP (three-year longitudinal survey done by the Census) had around one-third of Americans finding themselves in episodic poverty at some point in the three years, but just 3.5% finding themselves in episodic poverty for all three years. The PSID data show that around 4 in 10 adults experience an entire year of poverty between age 25 and 60. If you count kids, the number of people who experience at least one year of poverty rockets even higher of course.

Also, it deserves pointing out that nearly 45 percent of adults use a means-tested welfare program in their life (this, presumably, is the number of adults who would need to prostrate themselves before social workers at some point in their life to spell out some ridiculous life contract under Ryan's plan).

Getting Specific About Structural Holes

The revolving door of poverty is a slam dunk indicator that the structural theory of poverty is correct, but we can get even more specific by identifying where the structural holes are. There are many places to focus, but one very easy and indisputable one is age.

First, consider child poverty. Children have much higher poverty rates than adults and younger children have higher poverty rates than older children.

Why is this? Two reasons. First, families with children in them have to get more income each year to stay above the poverty line than families without them. But, the market does not distribute families more money just because they have more children. Consequently, the mere act of adding a child to a family makes it more likely that the family will be in poverty. Second, adults have children when they are young workers, but young workers also make the least income. This too makes it more likely a child will be in poverty than an adult purely because of the way the economy is structured.

Why do young children have higher poverty rates than older children? Because young children have young parents and old children have old parents. Old parents make more money than young parents because they are deeper into their income life cycle. That is why the graph above looks the way it does.

Second, consider adult poverty by age:

It's common to describe 25-65 as prime working-age adults. But look at how much poverty falls over those working years. Nearly 20% of 25-year-olds are in poverty while less than 10% of 64-year olds are. Why? Young workers make less money than old workers. Young workers are often taking care of children as well, while older workers generally aren't. This is structural. This is one of the very blatant structural reasons why you are going to see people swapping in and out poverty over their life course just like the longitudinal data show.